CPD: Inflation rate will not fall as predicted

The Centre for Policy Development, the premier non-government economic think tank in Bangladesh, does not believe that the inflation rate will go down to 5.5% as Finance Minister AMA Muhith predicted in his budget speech at parliament on Thursday.
“[… rather] there is a concern of the inflation rate going up,” said Dr Debapriya Bhattacharya, distinguished fellow of the think tank, while presenting his informed opinion about the proposed national budget for 2017-18 fiscal year at a hotel in Dhaka yesterday.
“I think the overall tax structure will increase production cost, and the living expenses will go up. This is likely to trigger inflation and adversely affect investment and economic growth,” he added.
In his budget speech on Thursday, Muhith proposed a tax revenue target of Tk248,190 crore for the 2017-18 fiscal year, of which Tk91,344 crore will come through VAT collection and Tk86,867 crore will come from income tax collection.
The new income tax collection target is 32.3% higher than that of the outgoing year, while the VAT target is 32.5% higher.
“Lower and middle income people will feel the pressure,” he said.
The government’s decision to increase gas and electricity prices and not to lower fuel prices may make the situation worse, he added.
The CPD asked the government to specify how they planned to achieve the tax revenue targets and urged them not to increase tax burden on the existing taxpayers, instead of expanding the tax net.
Debapriya also said the proposed budget has set ambitious targets, but it lacks a comprehensive road map for effectively achieving the said targets.
He pointed out that people were being deprived of benefits from government allocations because the government was failing at time-bound implementation of priority and fast-track projects.
Also Read- Betting big on public pockets
“Lack of proper utilisation of the allocated resources in large-scale physical infrastructure projects create a barrier towards better distribution of resources in other important low-cost projects,” he added.
He said the proposed budget projected a 7.4% GDP growth, but it would be meaningless if the government did not create more jobs.
To reach the GDP growth target, an additional investment of Tk6,000 crore in the private sector and Tk50,000 crore in the public sector is required, he added.
Overall, there is little scope for enhancing the delivery efficiency of the new budget, Debpriya said.
“One will have to get the political economy right … The Ministry of Finance needs to come up with a bold implementation plan, building on some of the ideas mentioned in the budget.”
The CPD also made a series of recommendations: 1) It advised the government to establish an independent fiscal policy authority and separate the existing unit from the revenue collection authority; 2) It called for the government to introduce a separate but integrated budget for local government and set up a permanent local government financing commission; 3) Adding NGO financing in the public expenditure; 4) Setting up an independent Public Expenditure Review Commission; 5) Setting up an independent Finance Sector Reform Commission; 6) Setting up an Agriculture Price Commission; and 7) Setting up an independent statistical commission.
Debapriya also criticised the increased excise duty on bank accounts.
“The new move will act as a disincentive for those using banking channels in times of falling interest rates on savings,” he said.
CPD distinguished fellow Prof Mustafizur Rahman, Research Director Khondaker Golam Moazzem and Research Fellow Towfiqul Islam Khan spoke at the event as well. CPD Executive Director Fahmida Khatun moderated the event.